Pinched Penny: Unpacking Cultural Significance of Penny Discontinuation
The penny has been a staple of American currency since 1793 and has featured President Abraham Lincoln’s image since 1909. Its discontinuation marks the end of over two centuries of history.
Despite its declining practical use, the penny holds cultural significance for many Americans. Anthropologist Ursula Dalinghaus of Ripon College, Ripon, Wis., notes that physical currency still plays a vital role for many individuals in budgeting and daily transactions.
In an interview with radio station WDBO (Orlando, Fla.), she notes: “Cash is very important for a lot of people—to budget, to keep control of costs. Even just donating a penny to someone asking for small change, it does add up,” she says.
“I feel like we’re far too quick to only look at what is the cost of minting it or distributing it and we’re not really willing to look at the everyday experiences and interactions people have. So maybe if we don’t use small change, we don’t think about it. But other people do,” she concludes.
A Penny for Your Thoughts: Will Ending Pennies Costs More in the Long Run?
Among the justifications for this coin’s discontinuation 2024 Annual Report of the U.S. Mint, are the finances associated with minting a penny. Each penny costs 3.7 cents to produce, leading to an $85 million loss in 2024 alone.
In pulling the plug on the penny, the Treasury Department anticipates annual savings of about $56 million after offsetting other costs, again as noted in the 2024 U.S. Mint Annual Report. This move aligns the U.S. with other countries like Canada, Australia, and New Zealand, which have already phased out their lowest-denomination coins.
But the removal of the cent from the U.S. currency system may produce an unexpected after-effect: Eliminating the penny could spark an increased demand for nickels, which are even more costly to produce than their copper-plated counterpart (14 cents vs. 3.7 cents). This shift could potentially offset the anticipated savings at the federal level.
No More Pennies – Rounding Up or Down?
Consumers may appreciate the convenience of no longer handling a low-value coin, but they may balk when an economic downside makes itself known. An analysis of this issue from The Wall Street Journal reveals the double-edged nature of the currency change.
With the penny’s removal, cash transactions will be rounded to the nearest five cents; however, there is currently no consensus on whether this rounding will be up or down. It is reasonable to assume that merchants will prefer to round up, while consumers will look for prices to drop.
Some economists suggest that rounding could lead to slight inflation, as businesses might round prices up more frequently.
Digital transactions, however, will remain unaffected, as they can still process exact amounts.
The Legal Landscape of U.S. Coinage Reform
Another issue surrounding the intent to streamline U.S. coinage is whether the President has the power to enact this kind of monetary shift at all.
Although the Treasury Department can halt the production of coins, only Congress has the authority to eliminate a coin’s legal tender status, making legislative action essential for their full removal.
Thus far, two bills have been introduced to move this proposal forward: the Make Sense Not Cents Act and the Common Cents Act. The former has been referred to the Committee on Banking, Housing, and Urban Affairs. The latter is with the House Committee on Financial Services. Both must wind their way through the Senate and the House before being presented to the President for signature.
Pennies will therefore remain legal tender and continue to circulate until they fall out of usage over time.
Canada’s Penny Discontinuation: A Blueprint for U.S. Transition
The run-up to a financial system that is absent a penny will take some adjustment for both bank personnel and consumers. Fortunately, a model for this transition already exists. Canada stopped distributing the penny in 2013, and in the aftermath, bank tellers and financial institutions had to adjust to new processes, primarily around the handling of the coin. Here’s what generally happened:
- Acceptance of Pennies for Deposit: Banks continued to accept pennies for deposit from customers. While the Royal Canadian Mint stopped distributing new pennies, the existing ones remained legal tender indefinitely. So, tellers would still take jars or rolls of pennies that customers brought in. Some banks might have encouraged or even required pennies to be properly rolled for deposit.
- No Longer Giving Out Pennies: The key change for tellers was that they stopped dispensing pennies as change in cash transactions. This meant they no longer needed to keep rolls of pennies at their stations or count them out for customers.
- Rounding of Cash Transactions: For cash transactions, rounding became the standard practice to the nearest five cents. Tellers would need to be familiar with the rounding rules (e.g., transactions ending in 1, 2, 6, or 7 cents rounded down; 3, 4, 8, or 9 cents rounded up). This applied only to cash; electronic payments still processed exact amounts.
- Reduced Banks’ Handling Costs: From the banks’ perspective, ceasing penny distribution was expected to lead to significant cost savings in terms of handling, storing, and transporting these low-value, heavy coins. This would have impacted the workflow and logistics for bank tellers and cash management departments.
- Bank Customer Communication: Banks played a role in educating customers about the change. Tellers would likely have fielded questions about the penny’s status, rounding, and how to deposit existing pennies.
- Shift in Bank Operations: While not solely due to the penny, there’s a broader trend in banking towards tellers taking on more advisory roles as routine transactions move to ATMs and digital channels. The penny’s discontinuation likely contributed to this by further reducing simple cash-handling tasks.
In essence, tellers in Canada adapted to a new reality where the physical penny was no longer actively used in daily cash transactions at the point of sale but could still be deposited.
The Penny’s Phase-Out: Implications for Banks and Consumers
The decision to cease penny production reflects a broader trend toward modernization and efficiency in currency management. While it offers potential cost savings and aligns with international practices, it also presents challenges that require careful consideration by the banking industry. As the transition unfolds, banks will play a crucial role in facilitating this change and addressing customer concerns.